2020 was a great year for precious metals, but it was also an exciting time for Bitcoin and for the crypto space in general. We saw remarkable price gains and a surge in insti­tutional interest, reflecting the renewed enthusiasm and overwhelming optimism about the prospects of cryptocurrencies and of Bitcoin in particular.

At Global Gold, we’ve long opposed the view that cryptocurrencies and physical precious metals are somehow in competition or that the rise of Bitcoin would threaten to displace gold. On the contrary, we saw the potential synergies very early on and we realized the two asset classes could complement each other and together render a portfolio even more robust and resilient. Given the latest developments in the crypto space and the investor interest they’ve garnered in recent months, we decided to take a closer look at the forces driving the crypto rally and shaping the future of cryptocurrencies.

At Global Gold, we’ve long opposed the view that cryptocurrencies and physical precious metals are somehow in competition or that the rise of Bitcoin would threaten to displace gold. On the contrary, we saw the potential synergies very early on and we realized the two asset classes could complement each other and together render a portfolio even more robust and resilient. Given the latest developments in the crypto space and the investor interest they’ve garnered in recent months, we decided to take a closer look at the forces driving the crypto rally and shaping the future of cryptocurrencies.

To help us understand these drivers and to really appreciate the full potential of Bitcoin and the crypto sector at large, as well as to get to the bottom of questions we often hear from clients, we turned to ,Jeff Nabers, a long-time friend and close partner of Global Gold, and the BFI Capital Group in general. He has founded multiple successful companies in the US in the fields of mortgage brokerage, real estate investing, pension consulting, and crypto-asset investing. Jeff has extensive and direct experience in the crypto space, combined with a deep understanding of economics, monetary history, and financial markets, a combination that makes his insights particularly valuable, especially for the more conservative, “traditional” investor.

Jeff also serves as an Advisory Board member to the BFI Capital Group, where he supports BFI in the realm of alternative investments and crypto assets. I’ve personally known Jeff since 2010, when we started helping mutual clients not only access physically allocated metals storage with Global Gold in Switzerland, but with other wealth management and wealth preservation tools for US investors.

In the interview that follows, Jeff’s point of view focuses on the practical advantages and the straightforward investment implications of the “rise of crypto” and addresses the core concerns that every responsible investor has about the current financial and monetary system.

Scott Schamber Jeff, our relationship already predates when I first joined the Global Gold team in 2017, although I knew you obviously before that while working for the BFI Capital Group. As a bit of intro, can you give us a brief history on how you started offering Global Gold to your clients?

Jeff Nabers In 2006, I started a consulting firm to help investors prepare in advance for the crash that came in 2008. My clients and I were largely invested in real estate at the time. We were reducing our exposure to real estate and holding large positions in cash. I was surprised by the magnitude of the money printing and bailouts that occurred. We were all concerned about inflation and even the potential for hyperinflation.

All of my research led me to precious metals as a hedge. The problem I was aiming to solve was to protect wealth for the worst-case scenario of hyperinflation. That sent me on a search for international jurisdictions and led me to Global Gold in Switzerland. Through multiple trips to Zurich, I became confident in the Global Gold team and have introduced many mutual clients to the program. We all sleep better at night.

,SS, Obviously, our main theme today is Bitcoin and cryptocurrencies. How did you get started on the whole subject of crypto and what led to this focus you now have in it?

,JN I’ve been an early adopter of computer technologies from childhood onward. I started out writing computer programs to play pranks on family members, but since, have observed how innovation progresses. I’ve noticed patterns of what works and what doesn’t. Bitcoin was launched in 2009, as a response to the financial crisis and bailouts. At first, I thought it would never work and that the hyperinflation problem was fully solved by precious metals alone. In 2013, the topic of suspected manipulations in the supply of the gold market caught my eye and caused me to take a second look at Bitcoin.

I was surprised to see Bitcoin not only had not been hacked or destroyed by governments in its first 3 years, but that the price had appreciated by over 50,000%. That’s when I suspected something much bigger was going on and began investing in Bitcoin with a long term buy and hold strategy. I expected that if it hadn’t completely failed and gone to zero in another 3 years—which would be in 2016—it would confirm that something truly paradigm changing was in fact occurring. Of course, that confirmation did come, the price has appreciated by another 67,000% and I do believe the paradigm has changed. Behind the attention-grabbing outsized capital appreciation there is a much bigger story of the restructuring of society.

,SS, Over the last few months, we witnessed spectacular moves in the Bitcoin price, including the recent shattering of the $20K ceiling. As a result, the cryptocurrency is making headlines again and attracting mainstream attention, much like it did during its first big rally in 2017. Should we expect a massive correction to follow, like it did back then? Or is this time different?

,JN, In my view, there is a high probability of a major correction after a much higher new all-time high is hit, perhaps around $50,000-$100,000. One of Bitcoin’s novel properties is the network reduces its inflation rate every four years, predictably increasing its scarcity. This appears to create a four-year cycle that results in a bubble and subsequent correction. The trick to see the cycle is to view the BTC chart on a logarithmic scale plotted over at least 8 years, which covers two cycles.

In light of that, the question becomes “where are we in the 4-year Bitcoin cycle now?” The answer is we are in the “2016” phase of the cycle. If the analog completely held up, we would be in a big bubble at the end of 2021 at a price of approximately $250,000.

What is different this time is institutional adoption amid radically experimental fiscal and monetary policy. This increasing demand could make the bubble occur at a much higher price point and lead to a correction period that is shorter.

,SS, A lot has happened in the crypto space between the 2017 peak and this year’s resurgence. There were countless startups, initial coin offerings (ICOs) and new concepts popping up amid the first rally, but after the collapse, we saw investor interest subside quite dramatically, especially on the retail level. Did that dry spell help purge bad ideas and bad actors from the crypto space, leaving mostly more sophisticated investors and solid companies behind?

,JN Yes, many bad ideas and bad actors have been purged. There have been winners and losers. Bitcoin won the digital hard money contest. Remaining crypto assets, often called “altcoins”, are in two camps: one is crypto projects trying to create financial instruments that work with stablecoins, which are crypto equivalents of dollars, euros, etc. The second camp is that of zombie coins whose long-term value is zero.

,SS ,For a lot of conventional investors, this crazy volatility can be off-putting, too reminiscent of past frenzies and bubbles. Many have a hard time understanding what the intrinsic value of Bitcoin and similar cryptocurrencies is, or even if they have any at all. Apart from enthusiasm and speculation, what is driving the price? What sets this class apart from common fiat currencies that are unbacked and run on faith and trust?

,JN This is a truly great question and gets into the meat of the topic. Most cryptocurrencies do have a long-term value of zero. Bitcoin stands alone in the digital hard money category. Its intrinsic value comes from its scarcity, security, liquidity and divisibility.

Scarcity: Its value is determined—just like all commodities—by supply and demand. The supply of Bitcoin is capped, and its inflation rate is 1.78% and decreasing. Unlike a political promise that can be broken, Bitcoin’s supply cap is hard coded and immutable. The certain supply cap itself generates demand. Any asset with a capped supply and increasing demand increases in price. This leads to a positive feedback loop, also known as reflexivity.

Monetary expansion is fuel on the fire of demand for Bitcoin, which accelerates the positive feedback loop. One interesting possibility is that we may already be in the early stages of hyperinflation and Bitcoin is unique in its hardness. Amidst monetary expansion, scarcity captures value.

Hyperinflation, then and now

Security: It’s important to highlight here that, while exchange companies have been hacked, the Bitcoin network itself hasn’t. This is just a sign that BTC shouldn’t be stored on exchanges. When handled properly, Bitcoin is an asset that cannot be seized. Every Bitcoin address has the equivalent of a highly sophisticated foreign trust asset protection strategy natively built in.

Bitcoin exists in a digital domain where physical force cannot coerce the network to stop processing transactions or freeze

someone’s funds, even if ordered by the most powerful person or group in the world. This is truly novel and in increasingly high demand.

Liquidity: Bitcoin is traded digitally, 24/7/365. A person can execute a $100 million transaction in Bitcoin in a matter of minutes for a fee of $6.80 (as of 12/27/20), even on a Saturday night. No other asset or financial system comes close to this.

Divisibility: This topic is often overlooked and underestimated. Even though there is a hard cap of 21 million BTC, there is more than enough Bitcoin for everyone in the world to use. In fact, every BTC is actually 100,000,000 transactable units called Satoshis, or “sats” for short.

This is the first time in history we’ve had a hard money that has a capped supply and infinite divisibility. Everyone in the world can get their hands on BTC by simply accepting BTC as payment for the products and services they sell to the marketplace. One sat is currently worth $0.0002715230 (as of 12/27/20).

Now let’s talk about faith and trust. 2020 was the year that a lot of trust was lost. Banks, government, and big tech have invaded our lives in ways we never thought possible. Trust in large industrial-era institutions is waning. Bitcoin represents a trust in hard coded promises that can’t be broken, backed by the same cryptographic technology that secures our nuclear weapons.

Volatility: So how can an investor come to terms with the volatility? Understanding Bitcoin volatility starts with properly viewing a chart. This involves a logarithmic scale and one-week (or one-month) candles that allow all of the price history to be viewed in one picture. That shows a long-term trend that looks nothing like a bubble.

Most Bitcoin charts you see on TV are of too short a time frame or plotted on a linear scale, or both. That creates a distorted picture that suggests the volatility is equally up and down. The corrected chart shows the upward volatility has far outweighed the downward volatility. In this sense, investors want this volatility.

There is also the bias of awareness. For most investors, 2017 was the first time Bitcoin entered their awareness, so they view $20,000 as Bitcoin’s starting point. Of course, the full picture is that over 24,000,000% price appreciation occurred before the 2017 high that was the attention “starting point.” The lesson investors are waking up to is that Bitcoin may be best held for multi-year periods, or even indefinitely.

BTC/USD, linear vs. logarithmic charts

Source: Tradingview

Institutional investors have learned to holistically look at the effect of Bitcoin added to a portfolio of other assets. In that view, Bitcoin often reduces the volatility of a portfolio because it is an uncorrelated asset. Uncorrelated assets are in high demand and low supply. This is why we see increasing institutional adoption of Bitcoin.

Another critical piece is understanding the “network effect” on value, known as Metcalfe’s Law. In a network, for every node or user added, there is an exponential increase in the value of the network. If you had the first telephone, but nobody to call, it isn’t worth much. But as users are added to the telephone network, the value grows. What’s counterintuitive is that the value doesn’t grow proportional to the user growth—it’s exponential. This was discovered by Bob Metcalfe, who is also the inventor of ethernet (that cable you plug into your computer to hard wire into the internet).

Metcalfe’s Law is observed in the values of Google, Facebook, and other big tech successes that harness network effects. Now Bitcoin is harnessing the network effects of the biggest network on earth: money.

Our brains don’t grasp exponential increases very well. Any asset that captures network effects tends to be undervalued during its growth of adoption. This means that if the Bitcoin network market cap becomes $20 trillion, it will be highly doubted every step of the way, just as it has been every step of its past.

Cont…

>> Read the rest of the interview here.